UPDATE 2-Muni board looking into pension funds disclosure

* Information could be on board’s website (Adds details, Moody’s data on state pension liabilities)

By Lisa Lambert

WASHINGTON, Jan 31 (Reuters) - Prompted by huge state and local government pension liabilities, the group that oversees the U.S. municipal bond market has begun looking into greater disclosure of the problem to protect investors, its chairman said on Monday.

The billions of dollars owed to public employees’ pensions is one of the largest problems looming over financially troubled states following the 2007-2009 recession and years of low returns on investments by the pension systems.

Underfunded pensions have caught the attention of regulators and members of Congress, and have led to questions about the credit-worthiness of the states with the largest liabilities.

The Municipal Securities Rulemaking Board, which writes the rules for the $2.8 trillion municipal bond market, is in the early stages of discussions on expanded disclosure requirements, Chairman Michael Bartolotta told reporters in a conference call.

In interests of greater transparency in the municipal bond market, the board will consider what information an investor might need to understand the risks some bonds pose, the board’s executive director Lynnette Kelly Hotchkiss said on the call.

“The securities laws require disclosure of all material facts,” she said. “If there is a pension liability that could impact the budget or the finances or the credit quality (of a state or local government) that is a material fact that needs to be disclosed.” <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

While the total shortfall states face for their pension liabilities is unknown, estimates range from $700 billion to $3 trillion. Many states have unfunded pension liabilities in the billions of dollars after their funds’ investments suffered large losses in the financial crisis.

Also, many states and local governments cut back their pension contributions when the recession devastated their revenue.

Illinois has an unfunded pension liability of $62.4 billion and California $49.6 billion, while New Jersey’s liability is $30.7 billion, according to Moody’s Investors Services. For more on individual states, please see: [ID:nN27238898]

The Securities and Exchange Commission, which enforces the rules the MSRB writes, last year rapped the state of New Jersey for not properly disclosing its pension liability to its bond buyers. More recently, the regulator has opened up an inquiry into Illinois.

Bartolotta said that the board could ultimately require public pension information be posted on its disclosure website known as EMMA, for Electronic Municipal Market Access. But the board would need to determine which common types of information must be disclosed.

“We’re trying to figure out where we are in as far as municipal bonds and public pensions,” Bartolotta said, while emphasizing the board is in the “preliminary stages” of discussing the implications of pension obligation disclosure.

Republicans in Congress are considering introducing legislation that would allow states to declare bankruptcy, which would provide an avenue for them to renege on pension promises and renegotiate contracts with unionized employees. (Editing by Jackie Frank)